Back in May, we introduced you to a concept called GDP, and today we’re bringing you a real-life example of what it looks like. If you don’t remember what GDP is, here’s a quick rundown.
GDP = Gross Domestic Product
It’s a monetary (or market) value that comprises of the goods and services produced within a country’s borders. GDP is a mechanism used to assess the health of a nation’s economy and to identify if a country’s economy is growing, or shrinking. In Australia, we calculate GDP on a quarterly basis. Governments are then able to make policy decisions depending on that number.
The calculation includes both public and private consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade.
There are four different types of GDP:
- Real GDP
- Actual GDP
- Nominal GDP
- Potential GDP
Real GDP is often used as the measure of the general health of the economy.
So why is Australia’s GDP in the news?
Yesterday, the Australian Bureau of Statistics announced that over the last year, Australia’s economy grew 1.1 percent. *Spoiler* this is much better than expected, and means the economy is now 0.8 percent bigger than its previous peak (which was prior to the bushfires and COVID pandemic).
Analysts are pleased with the main drivers of growth, split between private investment and household consumption. This generally means, according to Deloitte Access Economics partner Kristian Kolding, that “families are spending locally, and businesses continue to invest, making the most of record-low interest rates and tax offsets”. “Meanwhile, government stimulus is becoming a much smaller driver of growth than it was last year”, he added. Private investment was driven by investments in business machinery and equipment purchases, as well as housing investment (note: both of those areas were supported by government subsidies).
While these figures are promising, it’s not to say that Australia can breathe a sigh of relief. The pandemic is still providing challenges (think: Melbourne snap lockdowns) that can have serious consequences on the health of the economy, as well as the long-term effects of big Federal Government spending (think: debt). But to finish on a positive note, it is promising to see businesses regaining their confidence despite the various challenges of the pandemic.